S&P/ASX 200 Index (ASX: XJO) lithium stock Arcadium Lithium (ASX: LTM) has drawn plenty of attention over the past month following the takeover agreement reached with mining giant Rio Tinto Ltd (ASX: RIO).
Rio Tinto aims to acquire Arcadium Lithium for US$5.85 a share in an all-cash transaction, 90% above Arcadium Lithium's closing price on 4 October prior to the acquisition announcement.
The total value of the deal works out to some US$6.7 billion (AU$10.2 billion).
While that agreement wasn't formally announced until 10 October, rumours of the deal had been circulating for the prior week.
And investors responded by sending the ASX 200 lithium stock soaring by 94% since market close on 3 October. Though shares remain down 28% year to date.
Commenting on the acquisition at the time, Rio Tinto CEO Jakob Stausholm said:
Acquiring Arcadium Lithium is a significant step forward in Rio Tinto's long-term strategy, creating a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition.
Arcadium Lithium is an outstanding business today and we will bring our scale, development capabilities and financial strength to realise the full potential of its Tier 1 portfolio.
But not all shareholders are thrilled with the standing offer.
Rio Tinto offer undervalues ASX 200 lithium stock
Blackwattle portfolio managers Tim Riordan and Michael Teran believe Rio Tinto's offer undervalues the ASX 200 lithium stock.
In Blackwattle's Mid Cap Quality fund October report, they note that Arcadium Lithium was the largest positive contributor to the fund's performance over the month, spurred by the huge rally following Rio Tinto's bid for the vertically integrated global lithium chemicals producer.
According to Blackwattle:
We view LTM as highly unique given its vertical integration and growth potential. The Investor Day only a few weeks prior in September highlighted the value creation potential over the next few years.
As long-term investors, we were very excited about this opportunity, and believed the stock was deeply undervalued, but needed execution and time, to see this potential value realised.
With that background in mind, Riordan and Teran were less than impressed with Rio Tinto's US$6.7 billion offer.
The fund managers said:
When details of the deal were leaked at a value of US$4 billion to US$6 billion, we advocated strongly to the LTM board through a public letter to push for a price closer to US$8 billion. Later that same week, LTM board announced the recommendation of a RIO bid of US$6.7 billion.
We were disappointed with this result, and we stand convicted that the sale price for LTM should be closer to US$8 billion, based on replacement value and the Arcadium September 2024 Investor Day targets.
LTM shareholders should be fairly compensated for the strategic value provided to RIO.
For Rio Tinto's acquisition of the ASX 200 lithium stock to move forward, a majority of Arcadium Lithium shareholders present and voting, and representing at least 75% of the voting rights of all shares voted, will be required.
